Fringe Benefits Tax (FBT) (Australia)
An Australian tax paid by employers on non-cash benefits provided to employees, calculated separately from income tax and assessed on the taxable value of benefits at a current rate of 47%.
- What Is Fringe Benefits Tax (FBT)?
- How FBT Is Calculated
- Types of Fringe Benefits Under FBT
- FBT Exemptions and Concessions
- Salary Packaging and FBT
- FBT Compliance and Record Keeping
- FBT vs Income Tax: When Benefits Beat Cash
- Recent FBT Changes and Updates
- Frequently Asked Questions About Fringe Benefits Tax (FBT)
What Is Fringe Benefits Tax (FBT)?
Key Takeaways
- ✓FBT is a tax paid by employers (not employees) on the taxable value of non-cash benefits provided to current, former, or future employees.
- ✓The current FBT rate is 47%, which matches Australia's top marginal tax rate (45%) plus the 2% Medicare levy.
- ✓The FBT year runs from April 1 to March 31, which differs from the standard July-to-June financial year.
- ✓Employers must self-assess their FBT liability and lodge an annual FBT return by June 25 (or the date advised by the ATO if lodging through a tax agent).
- ✓Certain benefits are exempt or attract concessional treatment, including work-related devices, some car parking, and benefits provided by eligible not-for-profit employers.
Fringe Benefits Tax is an Australian tax that applies when employers provide non-cash benefits to their employees. Unlike income tax, which employees pay on their wages, FBT is paid by the employer. The tax exists because without it, employers and employees could simply convert salary into untaxed benefits and avoid income tax entirely. The Australian Government introduced FBT in 1986 to close this loophole. Before FBT, an employer could give an employee a car worth $40,000 instead of a $40,000 pay rise, and neither party would pay tax on it. FBT made benefits and salary equivalent from a tax perspective. The rate sits at 47% because it's designed to mirror the tax outcome if the benefit had been paid as salary to someone on the highest marginal tax bracket. This means the tax cost is the same whether you give an employee $10,000 in cash (which they'd pay up to 47% tax on) or a $10,000 benefit (which you'd pay 47% FBT on). The logic is straightforward even if the calculations aren't.
How FBT Is Calculated
FBT calculations involve gross-up rates, which convert the benefit's taxable value into a pre-tax equivalent. This is the part that confuses most employers.
Understanding gross-up rates
The ATO uses two gross-up rates. Type 1 (2.0802 for the 2024 FBT year) applies when the employer can claim a GST credit on the benefit. Type 2 (1.8868) applies when no GST credit is available. The gross-up exists because FBT is meant to replicate the tax that would've applied if the benefit were paid as salary. To arrive at the "grossed-up" value, multiply the taxable value of the benefit by the appropriate gross-up rate. Then multiply the grossed-up value by 47% to get the FBT payable. For example: an employer provides a benefit with a taxable value of $10,000 where GST credits apply. Grossed-up value: $10,000 x 2.0802 = $20,802. FBT payable: $20,802 x 47% = $9,777. The effective tax rate on the original $10,000 benefit is 97.77%, which is why FBT planning matters so much.
The FBT year and lodgment
The FBT year runs from April 1 to March 31, which doesn't align with the standard Australian financial year (July 1 to June 30). This creates a separate compliance cycle. Employers must lodge an FBT return by June 25 if they have an FBT liability, or by the extended due date if using a registered tax agent. Quarterly FBT instalment payments may apply for employers with an FBT liability of $3,000 or more.
Employee contribution method
Employees can reduce the FBT liability by making "employee contributions" toward the benefit. If an employee pays part of the cost from their after-tax income, the taxable value of the benefit decreases by the amount contributed. For a car fringe benefit, if the operating cost method shows a taxable value of $8,000 and the employee contributes $3,000, the taxable value drops to $5,000. This can be a cost-effective strategy because the employee's marginal tax rate is often lower than the 47% FBT rate.
Types of Fringe Benefits Under FBT
The Fringe Benefits Tax Assessment Act 1986 defines 13 categories of fringe benefits. Each has its own valuation rules.
Car fringe benefits
When an employer provides a car to an employee for private use, it triggers a car fringe benefit. Two valuation methods exist. The statutory formula method uses a flat 20% of the car's base value (regardless of kilometers driven). The operating cost method uses a logbook to calculate the private-use percentage of actual running costs. The operating cost method is more work but can produce a lower taxable value if the employee uses the car primarily for business. Employers should run both calculations and choose the lower one. Electric vehicles acquired from July 1, 2022 are FBT-exempt if the car's value is below the luxury car tax threshold for fuel-efficient vehicles ($89,332 in 2024).
Expense payment fringe benefits
When an employer pays or reimburses an employee's personal expenses, it's an expense payment fringe benefit. Common examples include paying an employee's private health insurance, home internet bill, or gym membership. The taxable value is the amount paid by the employer. If the expense has a business-use component, the "otherwise deductible" rule may reduce the taxable value.
Property and residual fringe benefits
Property benefits arise when an employer provides goods (phones, laptops, furniture) to employees. Residual benefits cover anything that doesn't fit the other 12 categories. The taxable value of property benefits is typically the cost to the employer minus any employee contribution. The "otherwise deductible" rule applies if the employee would've been able to claim a tax deduction for the expense.
Living away from home allowance (LAFHA)
LAFHA is paid when employees must live away from their usual residence for work. It covers accommodation and food costs above what the employee would normally spend. The ATO publishes reasonable food component amounts annually. If the allowance stays within these thresholds and proper declarations are maintained, FBT won't apply to the food component. Accommodation costs need to reflect actual expenditure. LAFHA is common in mining, construction, and fly-in fly-out (FIFO) arrangements.
FBT Exemptions and Concessions
Not all fringe benefits attract FBT. The legislation provides several exemptions and concessions that employers should understand to minimize their tax liability.
Exempt benefits
Work-related items don't attract FBT if they're primarily used for employment duties. This includes laptops, tablets, mobile phones, briefcases, and protective clothing (one of each per FBT year). Minor benefits valued under $300 are exempt if provided infrequently and irregularly. Employer contributions to complying superannuation funds are exempt from FBT (they're taxed under the superannuation system instead). Employee taxi travel for a single trip beginning or ending at the workplace is also exempt.
Not-for-profit concessions
Public hospitals, not-for-profit hospitals, ambulance services, and certain charities get FBT concessions. Public benevolent institutions (PBIs) can provide up to $30,000 in grossed-up FBT-exempt benefits per employee per year. Public and not-for-profit hospitals get a $17,667 cap. These concessions are a major recruitment tool for the not-for-profit sector. An employee at a PBI could receive $15,900 in pre-tax salary packaging (the pre-gross-up equivalent) completely FBT-free, which effectively increases their take-home pay compared to a for-profit employer offering the same gross salary.
Electric vehicle exemption
Since July 1, 2022, electric vehicles (including plug-in hybrids that meet emissions criteria) are FBT-exempt if the car was first held and used on or after that date and its value is below the luxury car tax threshold for fuel-efficient vehicles. This exemption has driven a significant increase in novated leasing of EVs. The Electric Vehicle Council reported a 161% increase in EV novated leases in 2023 compared to 2022. The exemption doesn't have a sunset date but is subject to review.
Salary Packaging and FBT
Salary packaging (also called salary sacrifice) is where employees agree to receive part of their compensation as benefits instead of cash. FBT is the main constraint on what can be packaged effectively.
How salary packaging works
An employee earning $100,000 might package $15,900 as non-cash benefits (the FBT-exempt cap for PBI employees) and receive $84,100 as salary. The $15,900 isn't subject to income tax, which means the employee's taxable income drops to $84,100. The employer pays the benefit from pre-tax salary, reducing the employee's tax bill without increasing employment costs. However, this only works when the benefits are FBT-exempt. If the benefit attracts FBT, the employer faces a 47% tax, which usually wipes out any advantage.
Common salary packaging items
The most commonly packaged items include novated car leases (especially EVs since the FBT exemption), superannuation contributions above the compulsory 11.5%, laptops and devices (one per FBT year, exempt), and for not-for-profit employees: mortgage payments, rent, credit card bills, and everyday expenses up to the FBT cap. Each employer sets its own salary packaging policy defining what can and can't be packaged, minimum packaging amounts, and administrative fees.
Reportable fringe benefits amounts
Even FBT-exempt benefits may need to appear on an employee's payment summary as reportable fringe benefits amounts (RFBA) if the grossed-up value exceeds $2,000 in the FBT year. RFBAs don't increase the employee's income tax, but they are used in income tests for things like Medicare levy surcharge, child support, HECS/HELP repayments, and some government benefits. This can catch employees off guard: their tax bill doesn't change, but their student loan repayments might increase.
FBT Compliance and Record Keeping
The ATO takes FBT compliance seriously. Penalties for failing to lodge returns, underreporting benefits, or maintaining inadequate records can be substantial.
Records employers must keep
Employers must keep records supporting their FBT calculations for 5 years. For car benefits: logbooks (maintained for a minimum continuous 12-week period, valid for 5 years), odometer readings at the start and end of each FBT year, and fuel and maintenance receipts if using the operating cost method. For expense payments: invoices, receipts, and evidence of the business-use proportion. For entertainment: details of attendees, purpose, and whether clients or employees were present. Employee declarations (for otherwise deductible rules, LAFHA, and living-away-from-home declarations) must be obtained before the FBT return lodgment date.
Common ATO audit triggers
The ATO frequently audits FBT in several areas. Car benefits where no logbook exists or the logbook is outdated (more than 5 years old). Entertainment expenses claimed as FBT-exempt that don't meet the minor benefits exemption criteria. Not-for-profit employers exceeding their FBT caps. Employers providing benefits but not lodging FBT returns at all. Large or unusual fluctuations in FBT liability between years.
FBT vs Income Tax: When Benefits Beat Cash
Whether a benefit is more tax-effective than equivalent cash depends on the employee's marginal tax rate and whether an FBT exemption applies.
| Scenario | Cash Payment | As a Fringe Benefit | Better Option |
|---|---|---|---|
| Employee on 32.5% tax rate, no FBT exemption | $10,000 salary, $3,250 tax, $6,750 net | $10,000 benefit, $9,777 FBT cost to employer | Cash (much cheaper) |
| Employee on 45% tax rate, no FBT exemption | $10,000 salary, $4,700 tax, $5,300 net | $10,000 benefit, $9,777 FBT cost to employer | Roughly equal |
| Any employee, FBT-exempt benefit | $10,000 salary, tax varies | $10,000 benefit, $0 FBT | Benefit (always wins) |
| PBI employee within $30,000 cap | $15,900 salary, up to $7,473 tax | $15,900 packaged, $0 FBT | Benefit (significant savings) |
| EV novated lease (post July 2022) | Car from after-tax salary | Car via salary sacrifice, $0 FBT | Benefit (savings of $5,000 to $15,000/year) |
Recent FBT Changes and Updates
FBT rules have seen several important changes in recent years that affect how employers structure their benefits programs.
Electric vehicle FBT exemption (2022 onwards)
The Treasury Laws Amendment (Electric Car Discount) Act 2022 exempted eligible electric vehicles from FBT starting July 1, 2022. This has been the most significant FBT change in a decade. To qualify, the vehicle must be a zero or low-emissions vehicle, first held and used on or after July 1, 2022, and have a value at first retail sale below the fuel-efficient luxury car tax threshold ($89,332 for 2024). Plug-in hybrid vehicles held and used before April 1, 2025 remain eligible even if they don't meet the stricter emissions criteria that apply from that date.
Car parking threshold changes
The car parking threshold (below which employer-provided car parking isn't a fringe benefit) has been increasing annually. For the 2024 FBT year, the threshold is $10.40 per day. If commercial parking near the workplace costs less than this amount, the car parking benefit is below the threshold and not taxable. The ATO has been scrutinizing car parking valuations more closely, particularly the method used to determine the "lowest representative fee" for commercial parking within a 1km radius.
Increased scrutiny on working from home
With more employees working from home, the ATO has clarified FBT implications of home-office equipment provided by employers. Items like monitors, desks, and chairs provided for home use can be FBT-exempt if they're primarily for work purposes. However, if the employee uses a company-provided item predominantly for personal use, it may attract FBT. Employers should document the business purpose of all home-office items provided.
Frequently Asked Questions
Who pays FBT, the employer or the employee?
Is FBT deductible for the employer?
Does FBT apply to contractors and sole traders?
What happens if an employer doesn't lodge an FBT return?
Can employees salary sacrifice into super instead of receiving fringe benefits?
How does the EV FBT exemption work with novated leases?
Written by Adithyan RK